Limited Government and Free Market Views in Delaware

Archive for June, 2013

Jessica Kuperavage, CRI’s newest intern, has some thoughts on what is making healthcare so expensive. The big problems is that people who pay little or nothing at all for health services are more likely to use them since there is no penalty for doing so. This is one reason why emergency rooms bill heavily for using their services: the idea is to cut down on people using the emergency room so the ER is saved for emergencies. Government involvement in healthcare also negatively affects the cost.

Why is Healthcare so Expensive? Understanding the Cost/Service Disconnect

One of the contributing reasons for the cost of medicine and medical services is the result of the fact that the people receiving the services – patients – are not directly paying for them, but are instead contributing a co-pay for a service that is largely paid by their insurance companies.

The disconnect between services and costs has consequences for the price and practice of medicine. Among them are the following: medical fees escalate, patient consumption of medical goods and services escalate, and medical innovation escalates.

Medical fees escalate: Insured patients and Medicaid/Medicare recipients often do not compare costs between medications and medical care providers. The information is difficult to obtain, and comparing costs is not a priority when immediate care is required. Furthermore, patients do not have the incentive to compare costs when a third party will cover a significant portion of the bill.

The lack of a medical free market, combined with direct to consumer pharmaceutical advertising and limited study data available to physicians, can also result in patients being prescribed medications that are expensive, but no more effective than treatments that are decades old and far cheaper. When the bulk of the cost is paid by a third party, such as an insurer, patients are less likely to consider whether a therapy is worth its cost.

Consumption escalates: Patients whose medical bills are paid primarily through insurance or governmental programs make more frequent trips to the doctor. While checkups are an important part of preventive care, more excessive use of medical services yields no patient benefit. According to a report in the Archives of Internal Medicine, the overuse of medical services accounts for as much as 30% of healthcare expenditures between 1978 and 2009. By definition, overuse is the application of screenings or treatments that have no positive health benefit or are more harmful to the patient than helpful.

Some types of screenings, while very common (and very expensive), have little or no positive effect on patient health. For instance, the U.S. Preventive Services Task Force recommends against screening for prostate cancer in men, stating that, due to the slow progression of the cancer and the serious side effects that frequently occur as a result of existing treatments, “many men are harmed as a result of prostate cancer screening and few, if any, benefit.” Prostate cancer rarely affects men’s quality of life or causes death, while treatment for prostate cancer can leave men incontinent and impotent.

While pressure for tests and medications can come from patients, physicians also become more likely to schedule additional health screenings as a means of preventing patient lawsuits. Although it may reduce malpractice claims, this practice is costly and frequently provides no benefit to the patient. Because patients do not pay most of the cost out-of-pocket, they comply with these recommendations for extraneous procedures.

Innovation escalates: Even if there was no inflation in health care costs as a result of reliance on insurance and governmental programs, many common therapies would be beyond the reach of consumers due to high costs. Insurance companies make MRIs and other expensive procedures accessible, and also make new procedures feasible for hospitals to provide to patients.

The influx of funds into health services also helps to drive further research, which can benefit patients. Medical and pharmaceutical research is lengthy, expensive, and only occasionally yields effective new treatments. Pharmaceutical companies offer pro bono expanded access programs, which provide experimental therapies to terminal patients who meet the FDA’s guidelines.

While some benefits occur, disconnecting cost from service causes many problems. Expanding governmental control over healthcare will exacerbate these.

Today we will focus on three articles from three different newspapers to explain where the economy is and what to make of news of our recent resurgence. The first article, Article One, is from the Delaware State News, “Chips are down, Dover Downs executives say” (http://bit.ly/15votif). Delaware’s casinos have suffered heavy losses due to two main factors: high casino taxes at 43.5% (along with 11% for the horsemen at the racetrack and 7% to vendors) and, required by law, high payouts to slot-players.

Mr. McGlynn said the casino has had 150 layoffs over the past four years, frozen pension plans, pushed more medical benefit costs onto employees and lost its ability to pay dividends to shareholders.

“We’re left with nowhere else to cut,” Mr. McGlynn said. “You get in a death spiral where you can’t recover.”

In 2012, $118.9 million in gaming revenue went to the state, leaving Dover Downs with $74.4 million.

However, after net expenses for payroll and payout to stakeholders, Mr. McGlynn said the casino garnered only $4.8 million for capital improvements.”

Delaware’s economy will suffer if the casinos reduce services or shut down completely. Harrington Raceway in particular, which is smaller than Delaware Park and Dover Downs, is particularly vulnerable. Competition from other states has hurt business, but the main reason the casinos are struggling is directly due to government meddling. The problem is, the state spends so much money they cannot afford for the short-term to allow for tax cuts, and so Markell’s office has been on record stating they do not intend to touch the tax rate right now. Assuming nothing is done before June 30, that means if the casinos are being forthcoming about their losses, they may be forced to lay off more workers, reduce tables or slot machines, or cut hours, or do other things to reduce costs.

OK, so if employees get laid off, they can qualify for unemployment insurance from the state until they find work, right?

Not so simple. This brings us to Article Two, from the News Journal, “1-week waiting period, higher taxes proposed in jobless benefits reform” (http://delonline.us/ZomTxO)

The state of Delaware took on a a lot of debt to give checks to unemployed workers in the state over the past few years, running up a deficit of about $70 million by borrowing money from the Federal government, which now needs to be paid. Seeing as how the Feds and many states are either broke, going insolvent, or running deficits (Delaware does, even if they insist by law they must balance the budget), Delaware is going to need to get the money from somewhere. Turns out it will be businesses and the unemployed who will pay. A bill will be circulated this week to increase taxes on businesses, and to ask the unemployed to wait 1 week before collecting benefits. The intent is to pay the bill before 2015, when higher Federal taxes would kick in to make up the pay. Although Delaware’s official unemployment is 7.2%, a study of DE’s employed in Delaware Today showed that 15% of workers are public sector, and another 15% work in health and social services, heavily reliant on public funds. There are now only 26,000 manufacturing jobs reported in the state.

OK, so working in Delaware is a toss-up, but not bad. At least housing is affordable, right? Well yes and no; Delaware has more affordable housing for residents, but the current resurgence in home prices may be a false alarm. Moving to Article Three Heidi Moore, a U.S. finance editor at The Guardian newspaper in the U.K., believes the current housing “comeback” is really a sham predicated on just seeing housing prices go up. (http://yhoo.it/14oD24G) and (http://bit.ly/1aykQZQ)

Basically what has happened is that the Federal Reserve is holding interest rates to record lows by printing money to subsidize purchases on things like cars, homes, student loans, and personal loans, all of which have seen an increase in volume moved over the last 3 years (this includes the fact that the government has bought many of these items with taxpayer money), that does not mean people have more money necessarily. What it means in housing, for example, is that “house-flippers” (those who buy homes, fix ’em up, and sell ’em quickly for profit) are driving up the cost as their bids become more and more ridiculous. Who is buying homes? The banks, using fresh money hot off the printing presses (literally) to buy homes to make even more money off future sales, and also who are collecting on foreclosed homes.

The point is, when the media tells you home prices are surging, the implication is that housing has recovered and people are finally looking forward to buying a nice home or property. In reality, the same sharks who made money off the last housing bubble are the ones who are making money off this one, set to burst at any time.